Finance

ISA warning: Your Help to Buy account may not pay a bonus even with money inside it – why?

ISA savings can be used to fund a home purchase through the help to buy scheme. Help to buy ISAs were designed to get people on the property ladder but there are certain limits in place.

Help to Buy ISA holders can receive a tax free bonus from the government when they use the savings within the account to purchase a home.

The state will provide help to buy ISA savers with a bonus worth 25 percent of their total savings.

This is capped at £3,000 in total, which will require the saver to have at least £12,000 in their account.

However, while people may be aware of the maximum limits on these accounts, they may not be aware that there are also minimum limits in place.

READ MORE: ISA: If your account isn’t ‘flexible’ your allowances could be limited

Lifetime ISAs also offer tax free bonuses for home purchases but they are a bit more generous in nature than their Help to Buy counterparts.

Up to £4,000 can be saved into a Lifetime ISA, as opposed to a £2,400 limit on Help to Buy ISAs.

If used to their utmost potential, Lifetime ISAs can provide holders with a bonus of £32,000, which dwarfs the maximum of £3,000 that Help to Buys ISAs can offer.

Additionally, the bonus awarded with Lifetime ISAs can be used for retirement funding if the holder does not want to use it for a home purchase.

Thankfully, it is possible to transfer Help to Buy savings into a Lifetime ISA.

However, savers who have large amounts in their accounts may face certain limits.

Lifetime ISAs have an annual limit of £4,000 and transfers will count towards this limit.

So, as an example, if a person has £12,000 in a Help to Buy ISA, they’ll only be able to move £4,000 across each year, potentially limiting bonus awards.

Lifetime ISAs can be used for buying a home so long as all of the following apply:

  • The property costs £450,000 or less
  • The property is bought at least 12 months after the Lifetime ISA was opened
  • The buyer uses a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them
  • The buyer is making the purchase with a mortgage



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